The problem is that even if you get your “needs” and “wants” straight, it’s still often not enough to make ends meet. If you’re working a job that doesn’t offer a nice salary, even meeting basic needs like housing and food and transportation and utilities can stretch your spending to the limit. This can even be true if you have a nice salary but live in an expensive area or if you have really big savings goals.
My philosophy on the areas of a person’s budget is that each budget area should handle your fundamental needs as well as a key want or two. Beyond that, you should be very careful about your spending.
Today, I’m going to walk through the common areas that many people have in their household budgets and look at each area through that lens. What do you need? What are your key wants – the ones that really make life enjoyable? Then, how can you meet just those needs and wants as cheaply as possible?
Let’s dig in.
Housing
Everyone needs a roof over their head to keep themselves dry when it rains, warm when it’s cold outside, and cool when it’s warm outside. They need a place to prepare food and a place to sleep.
The problem is that people often way overshoot what they need, turning their home into either storage for a bunch of stuff they don’t need or a bunch of empty space that they rarely use, both of which end up draining their finances.
What Do You Need?
I’ll use my own housing situation as an example. All we really need for housing is space for the five of us to sleep, to prepare food, to gather together, and to store a small amount of stuff. Quite honestly, my family could be quite functional in a home with about 600 square feet if we cut back on our possessions and organized things better.
Right now, even in our larger house, our three children share one bedroom (yep, there are bunk beds in there) and, most of the time, I don’t even go into the lower level of our house because, honestly, we don’t really need it. I could easily cut our home down to about 1,000 square feet without really skipping a beat.
When you’re thinking about needs, make sure you’re not including the things you really, really want as needs. It’s a mistake that people often make. For example, I know people who think of things like giant bedrooms as “needs” when such things are really “wants.”
What Are Your One or Two Top Housing Wants?
Looking at our list of housing needs, however, doesn’t cover the things I want from my home. I could list a lot of things but I can really boil it down to two key things. I would like for each of my children to have their own bedroom when they’re teenagers and I’d like to have adequate space for dinner parties and board game nights with my friends.
Right now, we don’t have quite enough bedroom space to pull off rooms for each child. Doing that will probably require that we move in the future.
However, the other one is quite possible. We have some shelves that store our board games and have an adequate sized kitchen to prepare food for a large group and multiple tables that are perfect for board games. We’ve had dinners and game nights with a dozen people in the past with little trouble.
In other words, if we actually moved into another home to meet these needs, one with roughly the same space as the one we have now (with some shifting around of the space) would actually work perfectly.
A large house honestly doesn’t meet any of my major wants for a house. I like to think about having that kind of a house sometimes, but when I actually look at what I want in a house, we don’t need much more space than what we have to make it happen, and we could certainly get away with less space.
Meet Just Those Needs and Wants as Cheaply as Possible
So, you’ve figured out that you really don’t need much at all for housing, but there are a few features you’d really like in your home.
Now, look around at where you live now. Does your current home meet these needs? Does it meet those one or two key wants that you have?
Chances are that if you really thought about the question and identified your core needs and top one or two wants for housing, your current living space fulfills that and more. The “more” is the tricky part – often, people live in housing situations that exceed their needs and their top wants. They end up with empty rooms and a lot of storage space, which is always a waste.
If you find yourself realizing that your home consists of the things you need, the two or three things you want, and a bunch of unused space and storage space, consider downgrading to a smaller home.
This achieves several things: It reduces many of your ongoing expenses, like utilities, insurance, and property taxes. It also reduces the maintenance time and effort required to keep things up. Furthermore, it reduces your storage space, giving you a good reason to go through closets full of unused stuff and sell that stuff off.
Transportation
Most of us need transportation of some kind in order to get to work and also to take care of tasks like buying groceries or picking up children. We also use transportation for many other things – going out to eat, entertainment, and so on.
People often resolve this by owning some number of cars, which are just simply expensive beasts. There’s the initial cost, the gas, the maintenance (oil changes are just the start), the insurance, the registration… it just seems to go on and on.
Is that the best solution? This is a great category to look at needs and wants.
What Do You Need?
For transportation, I look at this question in terms of what I need to do, not what equipment I have. What are my transportation needs, meaning where exactly do I need to go?
The biggest need for most people is work. You need to get to work and get home from work. Other major needs include getting food and moving children.
In our life, our primary car need is so that Sarah can go back and forth to work (I work from home). We also sometimes use cars to pick up children from school and from other events. We also need at least one vehicle that can handle slick roads as we live in Iowa and slick roads are a constant threat from November to April.
Going out to eat? Going out for entertainment? Going on road trips? Those aren’t needs…
What Are Your One or Two Top TransportationWants?
We have two major “wants” when it comes to transportation. We like to be able to regularly go to Ames and Des Moines for cultural stuff as a family, and we also like to be able to conveniently visit family as we have a lot of extended family within a 4 to 6 hour radius.
Honestly, we could meet the “cultural needs” aspect by simply moving to Ames or Des Moines, but we like living in a more rural setting. We could also visit family by renting a car, but we do it frequently enough that this would become pretty expensive pretty quickly.
Meet Just Those Needs and Wants as Cheaply as Possible
So, how do we meet our needs and wants as cheaply as possible? Right now, we are a two car family. Sarah commutes with a very fuel efficient car and we also have a four wheel drive that is used when the weather is poor.
The cheapest route for us would be to simply move close to where Sarah works, which would eliminate her work transportation needs and put us in a situation where public transportation is available for us. We could easily be a one-car family and still handle all of our wants just fine. Unfortunately, Sarah works in the midst of the Des Moines metro area and neither of us want to live in a city. It’s just not appealing to us.
If it were not necessary for Sarah to sometimes have a four-wheel drive vehicle to get to work, we would probably try being a one vehicle family.
So, what can you do to address your transportation needs and wants? I think the first thing to look at is your driveway. Is there a car that sits there most of the time unused? If so, you should consider getting rid of it, as doing so will save you a lot of money each month and will also give you a burst of cash when you sell it. Also, if you have access to public transportation, you should strongly consider eliminating a vehicle.
When you buy a new one, focus on two features above all else – fuel efficiency and reliability. Those two features drastically reduce the costs associated with owning a vehicle.
Utilities
When I say “utilities,” I basically mean everything beyond housing that has a regular bill attached to it. That would sweep in everything from your energy bill to things like home internet and Netflix.
What Do You Need?
Some of those “utilities” are necessities. In the modern era, people need running water. They need sewer service. They need electricity and/or gas. Those kinds of services are just part of modern living – it’s prohibitively difficult for most people to go without them.
The trick here is that some people extend that sense of “need” to more bills. Home internet. Cable. Gym membership. Those aren’t needs….
What Are Your One or Two Top Utility Wants?
Here, you’re looking at monthly bills you treat as utilities for things you want rather than things you need. Things like cell phones, home internet access, gym membership, and cable television fall under this.
Why limit this to just one or two things? Well, for starters, there’s the time factor. The more services you have that require your attention – internet access, cable, the gym, and so on – the less time you have to devote to each one during a given month. You start splitting your time more and more and more and more until there are things that you’re barely using and paying a monthly bill for.
Maybe your cell phone provides for your internet needs and you can cancel your home internet service. Maybe your Internet service plus Netflix can eliminate your cable bill.
Meet Just Those Needs and Wants as Cheaply as Possible
So, you have a few utilities you need – like your energy bill – and one or two utilities that you want – like home internet access. Already, you’ve probably saved some money, but you can go even further.
One of the best things you can do to trim your utility bills is to ramp up the energy efficiency of your home. You can do things like replacing your light bulbs with LEDs to cut back on energy use (and I’m going to mention LEDs again later on) and air sealing your home to save on heating and cooling.
You can also go through your bills and eliminate some of the optional services that you don’t really use. Just read through every line item on your regular bills and figure out if there are any that are unnecessary, then give your service provider a call and see if those can be eliminated
Clothing
We all need clothes on our back to keep us warm and to protect our skin. Still, there’s a huge difference between a small and efficient wardrobe and a closet full of barely warn clothes, and there’s also a huge difference between a bespoke suit and even a nice dress shirt.
How do you maximize the value of your clothing dollars? Here’s how I look at it.
What Do You Need?
I usually try to keep my wardrobe small enough that I can wash all of a seasonal wardrobe (summer and winter) in a single laundry load, with another load for utility clothes. The thing is, even that’s more than I actually need.
What’s the bare minimum, though? For many people, it’s enough clothes to be able to have a somewhat varied professional and personal wardrobe so that you’re not having to wash small amounts of clothes every single day (which is damaging and wasteful in and of itself).
For me, I look back on the wardrobe that I had near the end of my college years and the start of my professional years as a baseline wardrobe. I could wash all of my clothes in a single large load, and those clothes provided fifteen different professional outfits (three pants, five shirts) and twelve different weekend outfits (six shirts, two pants) as well as adequate amounts of socks and underwear. I also only had two pairs of shoes – one athletic and one for dressier occasions.
What Are Your One or Two Top Clothing Wants?
Almost all of us have larger wardrobes than that, so the truth is that additional clothing comes down to wants. What do I want from additional clothing?
For me, I mostly just want well-made clothing that minimizes my laundry needs. I prefer to do laundry for myself once every three weeks or so, doing two loads back to back when I do laundry. Given that my clothes are well made, this means that I rarely have to replace them, so there’s a fairly big upfront cost but the cost of actually maintaining things is pretty low.
What do you want from your clothes expenditures? Maybe you want comfortable clothing. Maybe you want to look as good as possible. Maybe you want variety. The key here is to choose one or two key things and discard the rest.
This isn’t really that unusual of a perspective. Think of people like Steve Jobs or Mark Zuckerberg who have a very limited wardrobe full of exactly the clothes that they want to wear. Their desire is to minimize the clothing decision process, so they figured out an outfit or two that they really like, bought what was needed to wear that outfit every day, and didn’t worry about anything else.
Meet Just Those Needs and Wants as Cheaply as Possible
So, you have a very basic wardrobe and one or two additional features that really define what you want most from your clothes. The key here is assembling it.
The first step is to dig through the clothes you already have and figure out what matches your needs. The rest? Sell it. Donate it. Get it out of your closet.
Then, add to that wardrobe as needed by patiently waiting on sales on just the items that match what you’re looking for. I do most of my clothes shopping on tax-free holidays, for example, and I just look for things that match what I want most out of clothes.
Outside of that, just don’t bother shopping for clothes. There’s no need!
Food
As with most of the other categories, we all need food. We need calories and water in order to be able to survive. That’s simply a fact of life.
As with the other categories, you can end up spending a lot on food simply by buying food that meets your needs but also scratches a lot of major and minor wants. Do you need to buy hundreds of dollars worth of food during a grocery store visit? Probably not. Do you need to go out to eat all the time? Definitely not.
What Do You Need?
Most people need about 2,000 calories of food a day and ample water, give or take a little bit. There are a lot of very cheap ways to get those calories by using really inexpensive staples like dry beans and rice, whole chickens, peanut butter, pasta, eggs, whatever produce is on sale this week, and so on. The truth is that you can meet your basic caloric needs without spending much money at all if you so choose.
The problem with food – and this is true for most categories here – is that it is incredibly easy to blur the line between needs and wants. Most of the time, we view everything we throw into our cart at the grocery store as a “need” without really thinking about it. Some even convince themselves that eating out is a “need.”
What Are Your One or Two Top Food Wants?
The thing is, all of us want more things from our food than just the cheapest route to our minimum calorie count. Some of us want convenient foods. Some of us enjoy the experience of dining out. Others want ethically produced foods.
Of course, the problem is that if you choose all of those things, your food budget is going to be incredibly expensive. Your best approach is to choose one or two things that you really care about when it comes to your food intake and stick with those.
For example, our family tries to eat really healthy, meaning we’re picky about some of the foods that we buy. We also enjoy eating out as a family as an occasional thing.
Meet Just Those Needs and Wants as Cheaply as Possible
So, how do we meet those needs and wants with little damage to our pocketbooks? For starters, we account for eating out a few times a month right off the top. That’s a fundamental part of our food budget.
However, we prepare almost all of the rest of our food at home. We do this by making careful meal plans based around what’s on sale in the grocery store flyer, assembling grocery lists from those meal plans, and sticking to those grocery lists in the store. Our meals are usually focused around staples, but when we buy those staples, we try to choose healthy versions of those items.
The end result? Our monthly food spending is lower now with three kids at home than it was for just the two of us ten years ago! What changed? We eat out a lot less and we prepare a lot of meals at home.
Household Supplies
Household supplies – things like hygiene products, cleaning supplies, and so on – eat up another portion of family budgets. This is a category where people typically don’t overspend too much, but when they do overspend, it’s really unnecessary overspending.
Let’s take a look.
What Do You Need?
We need basic hygiene. We also need to keep our house clean and our possessions clean – after all, we don’t want to get sick from dirty dishes or other messes.
The basic things needed to achieve those ends are pretty simple. Some soap, some cheap shampoo, a safety razor, and basic cleaning agents like vinegar and baking soda are all you really need to achieve those things.
Yet, when you look in people’s cupboards, you often find many other things. Why?
What Are Your One or Two Top Household SupplyWants?
It’s in the area of household supplies that many people fall into the “brand name” trap. They think of laundry detergent and Tide immediately comes to mind, so they drop it in the cart. Glad comes to mind with trash bags. Windex comes to mind with window cleaners. It goes on and on.
Why does that happen? All we really want from our household supplies are for them to do their job and that’s exactly how household supplies market themselves. Tide actually does clean clothes and it does the job pretty well. Glad makes trash bags that hold the trash. You get the idea.
The thing is, these products aren’t the only solution for the problem. They’re just what pops into our heads. We don’t need or even want name brands.
Instead, what we want is for our household tasks to be done well and, on occasion, done with an additional feature or two. We might want a room to smell really good, for instance.
Meet Just Those Needs and Wants as Cheaply as Possible
The best solution for meeting the needs and wants for household products as cheaply as possible is to try using generic products and see how they work. If they don’t work, switch back to the name brand, but 99% of the time generics do the job just fine.
I like to go even further than that and do things like making my own laundry detergent. By just mixing a cup of soap flakes (you can find them by the box at Wal-Mart), a cup of washing soda, and a cup of borax and then using one teaspoon of the mix in a load of clothes, they come out quite clean and it costs about $0.03 a load (cheaper than the roughly $0.20 a load that Tide costs). You can do a similar thing with window cleaner by mixing two parts water, one part vinegar, and a few drops of dishwashing soap in a spray bottle.
Things get clean, which is what I want most from those products, and it costs very little to do so.
Hobbies and Entertainment
What about the fun stuff? Our hobbies? Our leisure? Our sources of entertainment? Those can add up to a healthy portion of any budget if you’re not careful.
However, the challenge with any entertainment and hobby expense is time slicing. The more things you buy related to your hobbies and entertainment interests, the less time you have for each of those things.
The best route is to find a healthy balance.
What Do You Need?
It’s pretty hard to define this category as anything more than a “want,” but one can easily argue that we all need some form of entertainment and leisure to lead a balanced life. The catch, of course, is that there are many, many forms of free or nearly free entertainment and leisure out there.
For example, I’m passionate about reading. I love settling into a good book and getting lost in the pages. I have a lot of ways to engage in that hobby, though. I can buy books as I want them. I can buy books when I’m ready to read a new one. Or I can get engaged at my local library and enjoy that hobby for free.
I think that we all need a hobby or a source of entertainment or two, but those can be found for free. It’s the ones that require money that slip quickly into “wants.”
What Are Your One or Two Top Hobby and Transportation Wants?
I’m all for people having a lot of interests and so on, but it’s generally healthy for a person to only spend significant amounts of money on one or two of their interests. If you find that one of your interests is waning, sell those items and invest them in something else.
For me, my primary hobby that I spend money on is board gaming. I do spend some money on homebrewing, but it’s a much smaller amount and very secondary, and I really don’t have any other hobbies that I spend money on outside of really rare occasions. Sarah’s hobbies and entertainment streams include television and buying books.
In other words, you should figure out just a couple of your favorite hobbies or forms of entertainment and channel your spending in those areas.
Meet Just Those Needs and Wants as Cheaply as Possible
Once you’ve figured out your hobbies and entertainments that you’re going to be spending your money on, it’s well worth your time to investigate those hobbies and figure out how to maximize your dollars within them.
For example, I’ve spent a lot of time developing a strategies for spending less on my board gaming hobby. Because I’ve invested that time, I’m able to enjoy my hobby for a lot less than I might otherwise enjoy it.
You can follow similar strategies no matter what your hobby is. Just find blogs messageboards devoted to your hobby and look for methods for spending less on that hobby. Hold onto your money for big sales days and plan carefully when it comes to your purchases.